Financial technology unicorn Wise's announcement of its plans to float on the main market of the London Stock Exchange bodes well for London's future as a destination for growing fintech companies to list, industry insiders say.

The British payments company, formerly called TransferWise Ltd., is proposing a dual-class share structure, which gives differently weighted voting rights to different classes of investors, and is pursuing a direct listing instead of an IPO.

This unusual share structure has sparked a debate among industry experts about the pros and cons of dual-class shares and about whether direct listings, which are seen as easier and less costly than IPOs but are rare in the U.K., could catch on.

A unique structure

A direct listing means that Wise would sell existing shares directly to the public without the use of an intermediary, rather than creating new shares and raising fresh capital, as is the case with a traditional IPO. Wise is the first tech company to pursue a direct listing on the LSE, it said in a June 17 statement.

A direct listing is "a fairer, cheaper and more transparent way for Wise to broaden its ownership," the company said.

The direct listing approach could become popular in the future with fintech companies that do not want the expense and effort of an IPO, but it will not necessarily work for smaller fintechs or those that are not already household names, according to Brad Isaac, a corporate partner at law firm Fieldfisher.

"Three years ago, when music streaming service Spotify Technology SA floated on the NYSE via a direct listing, it's probably fair to say that most U.K. capital markets lawyers and financial advisers were fairly skeptical about direct listings taking off in London," he said in an email.

However, there have been "grumblings about the cost and effort of IPOs" from companies looking to list, he said.

But while a direct listing approach is something that could work well for companies that are large, have no need to immediately raise capital and are "household names," it might be less suitable for younger and less well-known companies, Isaac said.

"Direct listings are a much less credible option for startups and small caps, or companies in certain sectors where specialist knowledge is needed. Fintech covers a range of business types, some of which are more easily understood than others. So, while the direct listing process may be attractive for private companies with valuations of at least $1 billion and funding already in place, and may become more popular if Wise's listing goes well, if you are a smaller or unknown company, the chances are you will still need banks and brokers to help you raise the money and to underwrite the offering," he said.

The appeal of dual class

Wise's announcement comes shortly after the publication of two government-supported reviews that looked into ways to make London a more attractive place to grow and list promising fintech companies. The Kalifa Review and the Lord Hill Review, both published in the first quarter, recommend loosening restrictions around the use of dual-class share structures in a bid to lure more companies to float in London.

At the moment, companies listing on the LSE are allowed to have dual-class share structures, but if they do, they are not allowed to access the LSE premium list, which is a prerequisite for inclusion in the FTSE 100 and FTSE 250 indexes.

The Kalifa Review, led by former Worldpay Group Ltd. CEO Ron Kalifa, argued that while the U.K. is good at launching innovative fintech companies, it has not always created a good environment for them to scale and list in, which could lead to the most successful ones choosing to float in other global financial centers, especially New York.

The Lord Hill review, launched by U.K. Chancellor Rishi Sunak and spearheaded by Jonathan Hill, Conservative politician and former European commissioner for financial stability, financial services and capital markets union, raised similar concerns.

Dual-class listings have historically been rare in the U.K. but have been used fairly regularly by tech companies in the U.S., where some see them as a useful way of ensuring continuity in their strategy and mission following a transition to life as a public company, according to James Wootton, a partner at law firm Linklaters who is advising Wise on the listing.

One recent example of a U.K. dual-class listing is food delivery app Deliveroo PLC, which listed in London in March this year.

However, Deliveroo's decision came under fire from institutional investors including Aviva Investors and M&G Investments, which felt that the use of enhanced voting rights for certain shareholders concentrated excessive power in the hands of the company's founder, Will Shu.

A place to scale

But the debate about dual-class shares and direct listings aside, fintech unicorn Wise's decision to list in London is good news for the capital's future as a center for financial services.

"Following the Lord Hill and Kalifa reviews, it's encouraging to see another U.K. tech business choose to list in London," Stephen Kelly, chair of Tech Nation, a network for tech entrepreneurs, said in a statement commenting on Wise's announcement.

"Wise's intention to list here is fantastic for London," Wootton said.

The move will hopefully strengthen London's credentials as a place not just to start a fintech company, but to scale one, he added.

Wise's proposed listing is a good example of an established fintech company taking an opportunity to scale, Benjamin Ensor, director of research at fintech consultancy 11:FS, said in an email.

"Fintech has come a long way in just a few years. Once tiny startups have scaled up to become substantial businesses by using digital to deliver services that are faster, better and cheaper for customers. Investors will be attracted to a company that's become a household name," he said.